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Long Term Care Insurance

[dropcap]L[/dropcap]ong Term Care Insurance is an important consideration for many who are nearing or in retirement. It is an area that is very poorly understood, largely because most people don’t want to think about it. The goal of this article is to provide some helpful guidelines, but it stops short of any recommendations.

Like any insurance, it helps to have a sense of the odds of needing it.

According to a website developed by the US Department of Health and Human Services:

  • 70 percent of people over 65 will require at least some type of long term care service in their lifetime.
  • Over 40 percent will need care in a nursing home for some period of time.
  • The average person who needs some type of long term care requires three years of assistance.
  • Women average 3.7 years, and men only 2.2 years.
  • 20% of today’s 65 year olds will require care for more than 5 years.

The problem with this data is it doesn’t break down the severity of the care needed very well and some of it includes home based care that is given by family or friends. We do know that about 35% of people who enter nursing homes stay for between 1 and 5 years while 20 percent stay for longer than 5 years.

According the same website:

  • One year of care in a nursing home in a semi-private room costs an average of $68,000 per year.
  • One year of service from a periodic home health aide averages $18,000 per year.

Assuming you would want to remain in a high cost of living area or want better than average conditions, assume a bit less than double these figures. Putting this all together, we can assume roughly a third of people will require care that exceeds $100,000.

Expenses over $600,000 do occur, but are somewhat rare, perhaps lower than 5%. If spending this amount would be manageable for you on your own, you probably don’t need the insurance.

Who Pays For Long Term Care?

Usually, you do, not Medicare or Social Security. A lot of people don’t realize this.

Usually, Medicare does not pay for long term care, nor does standard medical insurance. Medicaid will often pay for much of it, but usually only once all of the person’s assets are depleted.

Who Should Consider Long Term Care Insurance?

Long-term care is a personal issue that requires an individual solution, so we are unable to offer detailed opinions here. A common belief is that if you have less than $250,000 or more than $1,500,000 in savings, there is not much benefit in LTC Insurance. There is some logic to this. If your savings level is within that range, consider the insurance and determine if it makes sense.

Premiums are, of course, cheaper if you start paying earlier, but for most people it probably does not make sense to worry about this before about age 45 or so. Single people tend to utilize the insurance more, but they also may not care as much about depleting their assets at the end of their life, so this becomes a personal preference issue.

If you have children, it is worth it to discuss it with them, as unpleasant as it may be. Ultimately, they will likely have a lot at stake in the decision.


The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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